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  • Jeff Desjardins And James Fraser Look At Junior Miners In A Way That May Surprise You

    It's never too late to find a new way to evaluate mining companies and Jeff Desjardins, and James Fraser of Tickerscores.com have developed one based on over 20 different criteria. Add in some near-term catalysts and the wheat separates from the chaff. In this interview with The Mining Report Desjardins and Fraser share the names of companies with some of Tickerscores.com's highest junior mining scores.

    The Mining Report: A recent article on Tickerscores.com, "The Great Divide: Inequality in Gold Juniors Means Opportunity," said: "It's clear we've reached a new level of separation between the wheat and the chaff." What does that mean for investors?

    Jeff Desjardins: As the bear market has progressed, many companies have struggled to raise the necessary funds to advance their projects. Even for those that have been more fortunate, it has often come in the form of dilutive financings.

    On the other hand, quality management teams have found ways to continue to move projects forward. We're starting to see a big separation in metrics such as cash, general and administrative expenses [G&A], news flow and, ultimately, the creation of shareholder value. For example, we cover 22 exploration companies working in Ontario and 82% of those had less than $400,000 in cash in Q1/14, up from 65% in Q3/13. Our top three exploration companies in Ontario hold an average cash position of $2.2 million [$2.2M] each. The other 19 average only a mere $150,000 per company. Furthermore, the G&A expense ratio for the bottom 19 companies is a hefty 76%, which means that $0.76 of every dollar is not going into the ground.

    We are looking at a great divide between the rich and the poor. The funny thing is that even though the rich companies have great management teams and cash to continue to develop their projects-key things that you want in a junior name-they are still trading at great valuations.

    TMR: In which mining subsector-producer, developer, explorer-is an investor likely to get the most bang for the buck?

    JD: All those types of companies have their advantages. It depends on an investor's portfolio, strategy and risk tolerance. Right now, we're focusing on developers. We published a report in early September that lists some promising companies in this stage. We believe developers with high-quality assets will be subject to merger and acquisition [M&A] activity once they are sufficiently derisked because larger companies want to buy proven resources at rock-bottom prices.

    Investors should look for developers with a resource of at least 3 million ounces [3 Moz] with high grade and in a safe jurisdiction. A takeover offer is rarely made before a company publishes a preliminary economic assessment [PEA] so investors should look for a PEA or feasibility study with a high net present value [NPV], low capital costs [sub-$700M] and a high internal rate of return [IRR].

    TMR: What jurisdictions should investors be taking a closer look at right now?

    James Fraser: Certainly anything in North America-Mexico, Nevada, British Columbia and Ontario.

    TMR: Are companies in those jurisdictions trading at a premium to the companies that aren't?

    JF: Yes. Assets in certain countries in Africa and other places like Russia trade at a significant discount to a similarly sized asset in a safe jurisdiction.

    TMR: Tickerscores.com maintains a database of 450 companies that is constantly updated based on financials, management, stock performance and mining projects. What are the weightings for each of those elements and do those weightings change over time?

    JD: They definitely change over time because the weightings are based on macro market conditions. In November 2013, the weightings of those factors were: financials, 54%; management, 20%; stock performance, 4%; and the project, 22%. Right now exploration companies are 43% for financials, 17% for management, 4% for stock performance and 36% for the project.

    TMR: What accounts for the greater weighting in projects?

    JD: The biggest reason for the jump in the project weighting is based on an improvement we have made over the last year, which is adding in a drill score economic analysis. We're looking at the economics of all drill holes for each exploration company, and comparing them against other companies in the same jurisdiction. We didn't do that before.

    TMR: How do you go about analyzing drill results?

    JF: In the drill hole analysis, we always compare companies in similar regions to each other. In British Columbia, for example, we would be comparing companies that are typically exploring for gold and copper together. We look at how many holes a company has drilled on the property and then take a company's best drill results to date and calculate a "gram meter" score. If an interval is 200 meters [200m] of 1 gram per ton [1 g/t], that's a score of 200. Or if it's 100 g/t over 2m, that's also 200. Once we have the results for a region, we will then rank them.

    TMR: So as much as possible you are trying to compare apples to apples?

    JD: By keeping as many variables as possible the same, it makes it easier to understand the key differences between two companies. We also provide "Power Rankings" to help investors sift through companies. If something jumps out to us, we make note of it there.

    TMR: What are the top three or four catalysts that move the score for explorers, developers and producers?

    JF: It's still a tough climate for exploration companies. The first thing we look at is cash position. A company needs money to do work. A significant financing or a well-funded joint venture partner would dramatically move a Tickerscore right now. As Jeff said, the higher quality names are outperforming while the majority of other companies are running very low on working capital. We don't expect the latter ones to survive the next 6 to 12 months. After cash, solid exploration drill results will certainly move a stock's Tickerscore.

    We see the most change in developers as they advance to the next stage, such as moving from an NI 43-101 to a PEA, or when a resource gets significantly bigger. If a company receives an important environmental certificate or mining permit, that will really move a Tickerscore.

    For producers it all comes down to making money. Were they profitable at the end of the quarter? Are their all-in cash costs increasing or decreasing? How do these metrics compare to previous quarters?

    TMR: Traditional mining equity analysts use discounted cash flow [DCF] models or other proven metrics like NAV or enterprise value to determine how companies ought to be valued. How do you think your methodology stacks up?

    JF: The higher-scoring companies in our database-the companies scoring over 60-are consistently outperforming the Toronto Stock Exchange and the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ).

    It's also worth mentioning that in the Tickerscores Top 10 list we published in January, our top picks for the year are up 34% year-to-date.

    Discounted cash flow models are generally used for producers and have limitations. The DCF model is static and does not account well for changing metal prices, increasing or declining production, or grade variability. We update our producers at least once each quarter based on their latest quarterly reports. We determine if the mine is high-grading [a process by which higher-grade ore is mined first]; we also look at all-in cash costs and other variables. We use 20 different metrics to determine a Tickerscore for each company.

    TMR: Please tell us about some companies in the most recent report that was published at the beginning of September.

    JD: In our Autumn 2014 report we have a mixture of exploration, development and producing companies. The companies that made this edition are some of the highest-scoring firms in our database. Each company has top-notch management, a solid balance sheet, and a promising project or mine. We also provide some near-term catalysts that investors need to watch closely.

    Interestingly, the first company that we highlighted in our report was Cayden Resources Inc. (OTCQX:CDKNF), which was just taken out by Agnico Eagle Mines Ltd. (NYSE:AEM) for $205M at a premium of 42.5%.

    Our latest report went out a week before that happened, so any subscribers that were able to act quickly have already gotten a great return.

    TMR: Cayden's key projects are also in Mexico. Tell us about that name.

    JD: In our Tickerscores database, we independently cover 29 exploration companies that have their primary projects located in Mexico. In August, we had Cayden with the top score of 80 overall, which is actually the best exploration score in our entire database. Cayden has everything we look for in an exploration company.

    For us, the key is its management team, which has a proven track record. President and CEO Ivan Bebek found a multimillion-ounce gold deposit in Ghana as a cofounder of Keegan Resources. With the agreement to sell the company to Agnico Eagle at a 42.5% premium, he has done it again for Cayden shareholders.

    The company also has a solid balance sheet and exciting exploration results. Cayden's El Barqueño gold project in Mexico looks as if it has potential to be 3-5 Moz. Cayden is one of the best-performing stocks year-to-date on the TSX Venture Exchange and now with the recent deal, we believe shareholders will be very satisfied.

    TMR: What are some other companies with exceptional Tickerscores?

    JF: Some other names with high scores in our database include Pretium Resources Inc. (NYSE:PVG), Lake Shore Gold Corp. (LSG:TSX), Balmoral Resources Ltd. (BAMLF), Rio Alto Mining Ltd. (NYSE:RIOM) [RIO:TSX.V] and Kirkland Lake Gold Inc. (OTCPK:KGILF) [KGI:TSX].

    TMR: Perhaps one more name to share with our readers before we let you go.

    JF: One name that was featured in our April Top 10 report is an energy stock. We usually don't cover energy stocks but we believe Mart Resources Inc. (OTCPK:MAUXF) [MMT:TSX.V] has too much potential to ignore. It's a small oil producer in Nigeria that pays a dividend and has several catalysts in the next six months. The big catalyst for Mart is the new Umugini pipeline. Mart could double its cash flow once the pipeline is complete.

    The CEO owns just over 8M shares and it is rumored that Mart could make an acquisition during the next couple of months. If Mart can deliver on its catalysts, we should see a significant re-rating of the stock price. The stock has gone from $0.10/share all the way up to $2. Now it's at $1.25/share as investors wait for that pipeline to come on-line. Investors should be cautious, though, because its main assets are in Nigeria.

    TMR: What should mining investors expect in the final quarter of 2014?

    JD: As we move into the fall, we expect to see more separation between the better companies and the weaker ones, or what we call "The Great Divide." It's all about the capacity to create shareholder value. The companies with no cash have severely limited capabilities to do this-and the quality names with world-class assets are going to be sought out by majors that need to replenish gold reserves.

    TMR: Thank you for talking with us today, Jeff and James.

    This interview was conducted Brian Sylvester of The Mining Report and can be read in its entirety here.

    Jeff Desjardins founded Tickerscores.com, a universal, independent and comprehensive stock scoring system that gives investors access to investment research on mining stocks. Tickerscores has coverage of over 450 precious metals companies on the TSX and TSX.V and compares them head-to-head to make due diligence easier for investors. Each quarter, Tickerscores also puts out an in-depth Top 10 report of the highest scoring stocks in the system and other analyst picks.

    James Fraser, mining analyst at Tickerscores.com, is passionate about the mining sector and mining stocks. His passion led to co-authoring the book "Mining Stocks Investor Guide: a guide to investing in mining companies." He has a finance background and has completed his Canadian Securities Course [CSC] and Conduct and Practices Handbook [CPH]. When Fraser is not "digging" up the latest mining stock, he can be found enjoying a wide variety of sports or travelling the world.

    Want to read more Streetwise Reports interviews like this? Sign up for our free e-newsletters, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit The Mining Report homepage.

    DISCLOSURE:
    1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) Jeff Desjardins: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over what companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    3) James Fraser: I own, or my family owns, shares of the following companies mentioned in this interview: Mart Resources Inc. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over what companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) The following companies mentioned in the interview are sponsors of Streetwise Reports: Balmoral Resources Ltd., Cayden Resources Inc., Mart Resources Inc. and Pretium Resources Inc. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert can speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    5) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    6) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    7) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Mining Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Mining Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Sep 16 3:08 PM | Link | Comment!
  • Brien Lundin Says Don't Miss This Buying Opportunity

    Brien Lundin, founder of Jefferson Financial, producer of the New Orleans Investment Conference and Gold Newsletter, believes at least a small amount of the massive liquidity produced by loose monetary policy in Western economies will find its way into mining equities following a summer pullback in equity prices-but don't wait long. Lundin expects the "buying opportunity" to last for two, maybe three weeks before seasonal gold demand pushes prices higher. In this exclusive interview with The Gold Report, Lundin discusses a select group of gold and precious metals equities that he expects to perform well as near-term news reaches the market.

    The Gold Report: On July 30, you sent out a Gold Newsletter alert that forecast a pullback in the midsummer bull market. The next day the Dow dropped 317 points, while the NASDAQ fell about 93 points. Since then the Dow has climbed back above 17,000, the NASDAQ above 4,600. Should investors dismiss that drop or do you believe it was akin to a tremor preceding an earthquake?

    Brien Lundin: That particular call made me look like a genius at the time, but right after that drop the stock market took off and reached new highs. The stock sell-off in late July was a sign that investors were nervous because we haven't had a meaningful correction during this bull market. However, there are potential pitfalls ahead for the economy-we still have to navigate the U.S. Federal Reserve's ending of quantitative easing and its first interest rate hikes. There's nothing directly ahead that indicates a major correction will occur, yet these things happen when you're least expecting them.

    TGR: You've been warning investors in Gold Newsletter about the erosion of the foundation of the U.S. equity market. Please give our readers a few points to underpin your thesis.

    BL: When I put forth that thesis, Q1/14 gross domestic product [GDP] had missed consensus estimates by 3.3%. The consensus going into that report was for 1.2% growth but it turned out to be just 0.1%-only to be subsequently revised further down to -2.1%. The miss for the consensus estimate was remarkable.

    I posited that these reports had possibly captured some underlying weakness in the economy. I expected a rebound in Q2/14 because a lot of economic activity was put off due to the unusually cold winter weather. But Q2/14 GDP was over 4%. I certainly wasn't expecting anything like that, and neither was anyone else.

    So, the idea of a major stock market decline stemming from a weakening U.S. economy has become more remote, at least for the time being.

    TGR: What are you seeing now?

    BL: The massive amount of money created in developed economies since the 2008 credit crisis really has not resulted in significant retail price inflation. If anything, there has been disinflation in major economies, such as in Europe where the European Central Bank is now turning to quantitative easing. The real result of quantitative easing in the U.S. and loose money policy throughout the Western economies is a virtual flood of liquidity looking for places to land. It's why we have U.S. Treasuries being bid down to their lowest rates ever, while the U.S. stock market is hitting record highs. Those two asset classes should be at opposite sides of the seesaw, but there's so much money looking for a home that both are soaring simultaneously.

    TGR: The Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ) has been trading lower since mid-July. In fact, the Dow Jones Industrial Average has outperformed that ETF over the last month or so. Is that a buying opportunity?

    BL: I think so. The timing is critical, though. While I don't see a near-term, fundamental driver to push the market higher in the very near future, there are some factors that I think will push the junior resource stocks and the metals higher this fall. So your real buying opportunity is probably over the next couple of weeks.

    All of the liquidity that I referred to earlier has to go somewhere. There's a broad consensus that gold is going lower and a lot of money is shorting gold. At some point over the next month or so-at the first sign that gold is not going lower-we're going to see some short positions get covered, and that ocean of money is going to start sloshing into gold and silver. At that point we should also see stronger seasonal demand for gold and that also will help power the gold equities market forward.

    TGR: One company that you follow in Gold Newsletter, Cayden Resources Inc. (OTCQX:CDKNF), recently received a takeover bid from Agnico Eagle Mines Ltd. (NYSE:AEM). The cash and share deal values Cayden at about CA$209 million, a 45% premium to Cayden's share price on the day the bid was made. What stands out in that transaction?

    BL: A lot of people were surprised by that transaction because Cayden does not yet have a resource estimate for El Barqueño, nor even all the necessary permits to drill the targets it had found through surface sampling. It's a very early-stage takeout bid, but as we've been reporting in Gold Newsletter, anyone looking at El Barqueño could see how the geological model was fitting together and the clear potential for a multimillion-ounce deposit.

    Cayden also has a great land position with the Morelos Sur project, which is next to Goldcorp Inc.'s (NYSE:GG) Los Filos mine. That gives Cayden a lot of leverage, and thus the bid by Agnico Eagle could be just the first volley in a bidding war. It's quite possible that Goldcorp will make a counterbid to acquire the important land next to Los Filos.

    TGR: Keegan Resources. Cayden Resources. Both juniors received takeover bids. Should investors follow Ivan Bebek and his team to the next company?

    BL: Absolutely. Bebek and his team had Keegan, which became Asanko Gold Inc. (NYSEMKT:AKG). We have followed Asanko in Gold Newsletter from its inception and still recommend it. That team now has another winner with Cayden and already has other things in the works. I'm not certain what that venture would be but it would really behoove investors to jump on board once this team gets moving on it.

    TGR: What are some other junior gold names you're following in Gold Newsletter?

    BL: I like Almaden Minerals Ltd. (NYSEMKT:AAU). The company recently published a revised preliminary economic assessment [PEA] on its Tuligtic project in Mexico that improves its net present value and rate of return, while lowering capital costs-which are still about $400 million [$400M], but that's much better than before. Almaden is now focusing on drilling some targets outside the resource zone. It's an intriguing exploration area around the current resource. The project has a long way to go up the value curve as it works more on the economics and toward feasibility.

    TGR: Almaden just raised more money to drill other targets on Tuligtic but it spent a lot of money trying to find the high-grade core of the Ixtaca deposit, which really hasn't been found yet. Now it's going to focus on other targets. How should investors read that?

    BL: The other targets where Almaden is drilling are areas where it has already done some exploration drilling. Almaden is attempting to expand its resource, but Ixtaca is already a multimillion-ounce deposit that justifies development. What the company doesn't have right now is a market where these kinds of achievements are rewarded. When the market turns around, the major producers will cherry pick the best of these deposits at reasonable prices. There aren't many at the top of the list but I think Almaden is going to be there. Companies that control these projects will be taken out at significant premiums to their current levels. Cayden may just be the first shoe to drop as these larger companies become more aggressive before the market takes off again.

    TGR: We have talked a lot about gold companies. What are some other junior resource companies that you're following?

    BL: Fission Uranium Corp. (OTCQX:FCUUF) [FCU:TSX.V] continues to plough ahead with drilling on one of the world's richest uranium deposits. The company has been boring the market with one stellar drill result after another so the price has actually slid some over the summer. This is a great buying opportunity.

    TGR: New drill results have expanded the high-grade R780E zone on its Patterson Lake South property in Saskatchewan. In fact, all of the drill holes so far have hit uranium mineralization. Is this still a standalone company if spot uranium was at $50/lb?

    BL: Absolutely not. Fission is really a bet on higher uranium prices. The uranium story is inevitable, just not necessarily imminent. We keep waiting for these supply-demand factors to impact the uranium price and they will eventually. Once that happens Fission is going to be one of the first companies taken out. As it stands now, it's just a great value play. We talk about all of these separate mineralized zones, but all these zones are going to connect in one very large deposit. It's worth every bit and more of what the company is selling for right now. People should just buy it, hold it and wait for a takeout scenario.

    TGR: Every year your company, Jefferson Financial, puts on the New Orleans Investment Conference. This year the show celebrates its 40th anniversary from October 22-25. The headline event is a panel discussion with former Fed Chairman Alan Greenspan, legendary investor Porter Stansberry and Marc Faber, publisher of the Gloom, Boom & Doom newsletter. What can investors learn from this?

    BL: On the Greenspan panel we're going to pointedly ask him about the Fed and the Treasury's role in manipulating the gold price and how that occurs, if it occurs. He no longer has any reason to obscure the truth. There will also be a moderated Q&A with Greenspan where he'll take questions from the audience. Those two panels with Greenspan are going to make headlines, if not history. He has a fascinating story. Greenspan was one of the most ardent and eloquent goldbugs in the 1960s. He was a close follower of Ayn Rand and some of his writings on gold still stand today as among the best ever produced on the role of gold in protecting citizens from currency depreciation.

    The rest of our lineup includes Dr. Charles Krauthammer, Peter Schiff, Rick Rule and Doug Casey. People come back year after year because they get to meet these experts and talk with them. They get stock recommendations and strategies that they'll never get anywhere else. It's always a dynamic event.

    TGR: Thank you for talking with us, Brien.

    This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.

    With a career spanning three decades in the investment markets, Brien Lundin serves as president and CEO of Jefferson Financial, a highly regarded publisher of market analyses and producer of investment-oriented events. Under the Jefferson Financial umbrella, Lundin publishes and edits Gold Newsletter, a cornerstone of precious metals advisories since 1971. He also hosts the New Orleans Investment Conference, the oldest and most respected investment event of its kind.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) Brien Lundin: I own, or my family owns, shares of the following companies mentioned in this interview: Cayden Resources Inc., Askano Gold Inc. and Fission Uranium Corp. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over what companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    3) The following companies mentioned in the interview are sponsors of Streetwise Reports: Almaden Minerals Ltd., Asanko Gold Inc., Cayden Resources Inc. and Fission Uranium Corp. Goldcorp Inc. is not associated with Streetwise Reports. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert can speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    5) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    6) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (i) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Sep 15 3:06 PM | Link | Comment!
  • Jeff Killeen: Cash And Catalysts Rule The Day

    Jeff Killeen, mining analyst with CIBC World Markets, has spent much of 2014 on the road vetting junior mining projects. He says that the cash-and-catalyst mindset should remain prevalent for investors looking at explorer and developer equities, while improving operations has been the biggest motivator for producer share prices in 2014. In this interview with The Gold Report, Killeen offers his insight and hands-on perspective on developers and producers with near-term catalysts.

    The Gold Report: Two years ago CIBC World Markets recommended taking a short position on a selection of gold stocks. What's CIBC's view on gold stocks today?

    Jeff Killeen: We had put out a basket of names recommending some short positions, but at that time gold was trading at about $1,600/ounce [$1,600/oz] and there was little support for the price at that level. That dynamic doesn't seem to be at play in today's environment. We are maintaining our current recommendation: Investors should be at market weight with respect to their gold equity allocations.

    Many mining stocks have performed well in 2014 and the move has largely been motivated by several factors. First, gold bullion itself has found a footing. The gold price has traded in a range of $1,250-1,350/oz, which is fairly narrow compared to how gold prices have moved in the past three to five years. Investors are becoming comfortable with the idea that gold will remain range bound for the coming 12 months or more, and concerns that gold could drop significantly over a short period seems to be waning with gold seeing support around $1,250/oz.

    While some profit taking on strong first half share performance is certainly justifiable, I continue to recommend buying gold stocks with a focus on companies that are currently generating healthy margins and could enjoy higher trading multiples as they gravitate up toward longer-term averages. I also like gold stocks that have underperformed relative to their peers in 2014 that are projecting improving operations or have meaningful catalysts in the near term.

    TGR: What do you expect the trading range for gold to be through the end of 2015?

    JK: Our gold price estimate for 2015 is $1,300/oz. Next year is likely to look a lot like 2014 with typical seasonal moves and maintaining that price range of roughly $1,250-1,350/oz for the year.

    TGR: Do you think the Market Vectors Junior Gold Miners ETF (GDXJ:NYSE) will be up another 30% through the first eight months of 2015?

    JK: That would be difficult. There could be stocks that realize some strong performance in the back half of this year and into next year, but I don't think it will be as broad based as we saw early in 2014.

    TGR: In the near term do you expect gold buying to gain steam or have seasonal gold buying trends become something of the past?

    JK: We've spent a lot of time tracking gold's seasonal price patterns over 5-, 10- and 15-year trends. Plotting the relative performance of gold prices over those periods shows a fairly consistent seasonal pattern. A move in the gold price in early June on the back of geopolitical tensions was unexpected and may have taken some of the steam out of a fall rally, but we need to realize that the typical fall rally is largely spurred by physical demand from the East. I don't see a reason why typical physical demand wouldn't materialize in 2014 and we expect the gold price to do well over the next few months.

    TGR: One division of CIBC World Markets uses quantitative models to identify predictive relationships and broad market trends. What are these models telling investors about small-cap gold stocks and the gold space?

    JK: Our quantitative analyst, Jeff Evans, has been promoting the idea that gold stocks, especially the more volatile small- to mid-cap gold stocks, have high beta outperformance relative to the S&P 500 and the Toronto Stock Exchange given the current environment for stable or marginally upward moving interest rates over the long term. That's from a technical standpoint.

    With that in mind, we have to be cognizant of the fact that we've seen better downside support and some strong moves in the gold price in 2014 that weren't necessarily expected and I'm sure that has helped move some gold stocks upward. But interest rates are having an effect on how people look at gold and gold equities, and using that as a trigger to buy or sell gold stocks makes sense to me.

    TGR: In June 2013 positive news had largely stopped moving equity prices. You told us then that it would be temporary. What news is moving producer and developer equities in this market?

    JK: On the producer side, improving operations has been the biggest motivator for share prices. Although I expect a lot of the cost improvements in the gold mining space have already been incorporated into operations, the market is thinking about how sustainable those cost improvements might be. Companies that maintain lower costs through 2014, relative to where they may have been in previous years, are likely to get attention as investors think about 2015 performance and if they should consider increasing their estimates for company earnings and cash flow. Such a scenario could generate further share support for good operators. Of course, companies that realize further cost improvements in the second half of 2014 are also likely to get investors' attention.

    TGR: What about developers?

    JK: On the developer side, we're starting to see share prices get rewarded for good drill results, resource growth and even new discoveries. When we spoke back in mid-2013 I recommended that investors stick to the cash-and-catalyst mentality because an exploration stock needs to have a strong balance sheet and material near-term catalysts. That approach was the right one and I'd stick with that concept today.

    TGR: Would you make any modifications to the cash-and-catalyst thesis given what has transpired between then and now?

    JK: Cash and catalysts are not the only components that a company must have. The main project has to have gold grades that are amenable to the type of process it is proposing, and the economics have to work at current gold prices to have a realistic chance of seeing a takeover offer. A company definitely has to have a solid management team to navigate today's tricky financing waters or wisely allocate capital.

    TGR: Which types of companies are seeing interest from institutional investors?

    JK: My producer coverage is in the small to intermediate market cap in the gold space. The intermediate producers tend to have a higher beta to the bullion price so that segment of my coverage seems to have sustained greater institutional interest in 2014. Despite some merger and acquisition [M&A] activity in 2014, the general feeling among investors is that although M&A is likely to continue, it's expected to come in the form of smaller consolidations or the sale of noncore assets by majors. In that context, exploration companies are struggling to attract attention from the institutional market.

    TGR: What are your top picks in the junior and midtier producer space?

    JK: My top pick would still be B2Gold Corp. (NYSEMKT:BTG). The company is spread out geographically, but it is continuing to incrementally improve the performance at the operations in production. B2Gold is going to bring on another leg of meaningful growth with the Otjikoto mine in Namibia later this year. Although the pace of acquisitions has been high over the last few years, B2Gold has been able to build a solid pipeline of projects-the next likely being the Fekola project in Mali. B2Gold will see fairly significant production growth over the next couple of years and that growth should come with improving costs. That's the kind of dynamic that investors are looking for given the concept that gold may stay range bound here in the near term.

    TGR: One recent drill result at TV Tower was 130.9 meters grading 1.5 g/t Au and 0.48% Cu starting at surface. You model results like these all the time. What does that look like to you?

    JK: No project is a single drill hole, but to have a single hole with those kinds of numbers is an excellent start. If you put several intercepts like that together you can quickly build pounds and ounces. Being able to validate a surface geological interpretation is big and a great starting point for any drill program.

    TGR: What's your sense of where we are in the recovery of precious metals equities?

    JK: I get the feeling that we have hit the bottom and taken the first leg up-but the next leg up could take some time to materialize. There are individual stocks that should have good performance through the back half of 2014 and over the next 12 to 18 months.

    From a broader perspective, a lot of the cost improvements have already materialized and I think there is little producers can do to significantly improve margins or cash flow. To accomplish those things we need to see a few things happen: more fundamental support from the gold price and an increase in physical demand in India and the rest of Asia. Better yields will catalyze the generalist investor back to investing in gold stocks.

    TGR: Thank you, Jeff, for your insight.

    This interview was conducted by Brian Sylvester of The Gold Report and can be read in its entirety here.

    Jeff Killeen has been with the CIBC Mining Research team since early 2011. He covers and provides technical assessment of junior and intermediate exploration and mining companies worldwide. Prior to joining CIBC, Killeen worked as an exploration and mine geologist in several major mining camps, including the Sudbury basin and the Kirkland Lake region. Killeen earned his Bachelor of Science degree from Carleton University.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see recent interviews with industry analysts and commentators, visit our Streetwise Interviews page.

    DISCLOSURE:
    1) Brian Sylvester conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services.
    3) Jeff Killeen: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
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